How much further does this selling have to go?

Kevin Marder is a guest columnist and a co-founder of MarketWatch. He is
principal of Marder Investment Advisors Corp. and a contributor to
The Gilmo
Report. Previously, he served as chief market strategist for Ladenburg Thalmann
Co. and developed institutional fixed-income risk management software for
Capital Management Sciences.

Historically, geopolitical events have proven to be buying opportunities for shares. There have been exceptions, for example, the 9/11 attacks which occurred in the middle of a bear market. The market tends to bottom when the least number of people expect it. It is safe to say that most believe lower prices are in store.

If the news this coming week is uniformly bad, watch to see what the reaction in the major averages is. And do not be surprised if the market ignores the bad news. This would be a first indication that perhaps the worst is behind it.

As always, the focus here will be on the price/volume behavior of the major averages and the action of the leading stocks. As for the former, the Nasdaq Composite will need to stage a positive test of the May 19 low, as shown in the chart below.

This means price would need to trough just above or just below the May 19 low. This would be a second indication that the worst is behind the market.

The third component of a low in the averages would relate to the action of the market's leadership. While equities have not been led by the growth sector for some time, a number of speculative growth titles have nonetheless broken out of bases in recent weeks and months.

The June 17 column included a list of 10 stocks that had recently done just that. As noted then, "Any shift in the speculative sentiment that may or may not occur may first be felt among speculative growth titles. For this reason, the key thing to watch for is the behavior of recent breakouts."

Since then, three of the 10 have broken down — Adobe Systems ADBE, -1.49%
, Cornerstone Ondemand CSOD, -1.88%
and Emergent BiosolutionsEBS, +0.74%
It will be important to watch the remaining seven as well as any other leadership names. This includes the few liquid glamours that are still holding up, e.g. Amazon.com AMZN, -1.70%
and Ulta Salon ULTA, -2.83%

Among the names, TAL Education Group US:XRS
is a Chinese provider of tutoring services to over two million students. During the February 2017 fiscal year, most analysts have a 4% rate of earnings growth penciled in, with another 43% on tap for the February 2018 year.

Revenue growth has been exceptionally consistent, with rates of 42%, 45%, 42%, 43% and 42% recorded over the most recent quarters, respectively. Growth in the number of mutual-fund sponsors has been torrid of late, up from 188 in September 2015 to 283 in December 2015 to 331 in March 2016.

Technically, XRS is forming a base-on-top-of-a-base pattern. Aggressive speculators might consider the May 25 high of 58.99 (see chart below) as a pivot for a cheater entrance ahead of the formal 60.44 base top. Friday's action was a positive, as price found support at its 50-day moving average line and rallied to close in the upper quintile of the day's range.

As always, a protective stop should be used to mitigate risk, along with a starter position that is half normal size, or less. This initial position could be added to if the stock proves itself.

Monster Beverage MNST, -0.63%
makes and distributes a number of energy drinks. The company, which counts Coca-Cola KO, -0.46%
as a minority shareholder, should post earnings growth of 32% this year and 20% next, according to forecasts by most analysts.

The stock is close to completing a double-bottom-with-handle base, and is under mild accumulation, as seen in the chart below. Aggressive speculators may consider using the June 9 high of 158.69 as a possible entrance pivot.

The best means of knowing when the Brexit coast is clear for the momentum player lies in the behavior of leading growth stocks and the major averages.

A number of these leading issues are mentioned above and in the June 17 column. This type of analysis is where the rubber meets the road and can go a long way toward keeping a participant on the right side of the market. As well, it will be incumbent upon the Nasdaq Composite and S&P 500 to make a low and then stage a positive test of that low. This may take some time.

As noted in last week's column, "...momentum players should play things close to the vest, perhaps postponing fresh-money buys until the market finds its footing."

The views contained herein represent those of Marder Investment Advisors Corp. ("MIAC"). At the time of this writing, of the stocks mentioned in this report, Kevin Marder and/or MIAC held no positions, though positions are subject to change at any time and without notice. This information, which may have been previously disseminated, is issued solely for informational and educational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. Past performance of any security or strategy is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to MIAC, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position.Neither MIAC nor any of its affiliates will be liable, and we accept no liability whatsoever, for any losses any recipient of this report may suffer as a result of his or her or its use of this report or any of its contents.

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